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TMI BlogDeferring Significant Economic Presence (SEP) proposal, Extending source rule, Aligning exemption from taxability of Foreign Portfolio Investors (FPIs), on account of indirect transfer of assets, with amended scheme of SEBI, and rationalising the definition of royalty.X X X X Extracts X X X X X X X X Extracts X X X X ..... to accrue or arise in India. Sub-section (1) thereof creates a legal fiction that certain incomes shall be deemed to accrue or arise in India. Clause (i) of sub-section (1) deems the following income to accrue or arise in India: "all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India." Finance Act, 2018, inter alia, inserted Explanation 2A to said clause so as to clarify that the "significant economic presence" (SEP) of a non-resident in India shall constitute "business connection" in India and SEP for this pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o starting from assessment year 2022-23. Certain drafting changes have also been made while deferring the proposal. The current SEP provisions shall be omitted from assessment year 2021-22 and the new provisions will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-23 and subsequent assessment years. [Clause 5] Further, as per the discussion going on in international forum, countries generally agree that income from advertisement that targets Indian customers or income from sale of data collected from India or income from sale of goods and services using such data collected from India, needs to be accounted for in Indian revenue . Hence, it is proposed to amend the source rule to clari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference between these two regulations pertinent in the present context is that the SEBI has done away with the broad basing criteria for the purposes of categorization of portfolios and has reduced the categories from three to two. In view of the same, necessary modification needs to be made in the proviso so inserted. Hence, it is proposed that the exception from said Explanation 5 provided to an asset or a capital asset, held by a non-resident by way of investment in erstwhile Category I and II FPIs under the SEBI (FPI) Regulations, 2014 may be grandfathered. Further, similar exception may be provided in respect of investment in Category-I FPI under the SEBI (FPI) Regulations, 2019. These amendments will take effect from 1st April, 2020 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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